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BE MAN EXAM 2
| What does "utility" mean? | Utility is a measure of the happiness/satisfaction/contentment experienced by a consumer following some purchase/decision/action - Utility is what drives consumer demand |
| What's an example of "utility" | Ex: you purchased some Minecraft Legos... • You did it because it made you happy • e.g. it provided you with some “utility” |
| True or False Demand is driven by "utility" | True • I “demanded” that product because it gave me some added utility • The quantity I demand of that product (and my utility) will depend on price |
| True or False Utility = Happiness | True |
| True or False Utility allows us to rank/order different goods {okay, good, better, best} | True For example, suppose I tell you: • U(chainsaw) = 5,000 • U(brisket) = 500 • U(donut) = 100 • U(1985 F150) = 50,000 |
| True or False Different people derive different levels of utility/happiness from the same purchase | True |
| What does "Marginal Utility" mean? | Additional utility received from consuming one additional unit of something (one more beer, one more donut |
| What's an example of "Marginal Utility" | Classic Example: Slices of Pizza • First slice → 20 utils • Second slice → 16 utils • Third slice → 12 utils • Fourth slice →6 utils |
| What does "Diminishing Marginal Utility" mean? | As you consume more units of a good, the additional added utility from consuming the next unit is less than the utility received from the previous unit |
| What's an example of "Diminishing Marginal Utility" | • First slice gives 20 utils • Second slice gives 16 • → Total Utility (2 slices) = 36 → ᵄᵄ = 20 • Third slice gives 12 • → Total Utility (3 slices) = 48 → ᵄᵄ = 16 • Fourth slice gives 6 • → Total Utility (4 slices) = 54 → ᵄᵄ = 12 |
| What does a "Complete" Consumer Preference mean? | A "Complete" Consumer Preference means, it is always possible to compare any two bundles of goods |
| What's an example of a "Complete" Consumer Preference? | Example: I can tell you whether: • I like 4 tacos more than 2 burritos • I like 2 burritos more than 4 tacos • Or I like them both the same |
| What does a "Non-Satiated" Consumer Preference mean? | A "Non-Satiated" Consumer Preference simply means “more is better” |
| What does a "Transitive" Consumer Preference mean? | A "Transitive" Consumer Preference means consumer has “rational” ranking among preferred bundles |
| What's an example of a "Transitive" Consumer Preference | If I like bundle X better than Y, and I like Y better than Z, then I must also like bundle X better than Z |
| What does an "Indifference Curve" mean/represent? | A set of all combinations of goods that provide the same level of utility |
| What does a "Marginal Rate of Substitution" mean? | Rate at which I am willing to substitute good X for good Y, holding utility constant -"How many units of good Y will I give up, in exchange for one more unit of good X” |
| What's the difference between an "Indifference Curve" and an "Indifference Map" | Indifference Curve: A single curve that contains all bundles that give same utility level Indifference Map: A collection of many indifference curves, for many different levels of utility |
| True or False Multiple indifference curves give an indifference map | True -We see consumer “preferences” graphically |
| True or False “More-is-better” implies happier as we move in NE direction | True -Utility gets greater as we move to higher indifference curves |
| True or False Consumer wants to be as happy as possible | True |
| True or False Consumer wants to be on highest indifference curve possible | True |
| What does a "Budget Line" mean? | All bundles costing exactly $48 |
| What does a "Budget Set" mean? | A set of affordable bundles (Triangle) |
| What factors can affect the consumers budget? | -Change in price of one good -Change in price of both goods -Change in Income |
| What happens to a consumer's budget if the price of a good decrease? | -The budget pivots OUTWARD -Intuitively, the price of X has decreased, and the total budget set got larger (can afford more stuff) |
| What happens to a consumer's budget if the price of a good increase? | -The Budget pivots INWARD -Intuitively, the price of Y has increased, and the total budget set got smaller (can afford less stuff) |
| What happens to a consumer's budget if BOTH prices of the good decrease? | -The Budget shifts outward -Intuitively, the price of both goods has decreased, and the budget set got larger (can afford more stuff) |
| What happens to a consumer's budget if income increases? | -From income M to new larger income M' - Budget shifts outward - Intuitively, income has increased, and the total budget set got larger (can afford more stuff) - This is a parallel shift (slope unchanged), because prices were unchanged |
| What does "Production" mean? | Production is the act of converting inputs into output |
| What does an "Input" mean? | Input is what the firm uses to produce their output |
| What are the 4 types of input? | -Raw materials -Equipment -Building -Labor |
| What does an "Output" mean? | Output is what the firm/company produces (food, clothes, data, cars, car washes, ...) |
| What's an example of Input and Output together? | Example: Chick-fil-a Inputs: - Raw materials: chicken, buns, pickles, potatoes - Equipment: grills, fryers, drink machines, cash registers - Building: storefront - Labor: people doing the work Output: - Chicken sandwiches - Waffle fries |
| What are the 2 types of production inputs? | -Fixed -Variable |
| What does a "Fixed" Production Input mean? | Fixed production input means not all output increases require additional input increase |
| What's an example of a Fixed Production Input? | e.g. Suppose Duluth is making 1,000 shirts/day • Do not need to buy another sewing machine to make 5 more shirts |
| What does a "Variable" Production Input mean? | Variable production input means any increase in output requires additional input increase |
| What's an example of a Variable Production Input? | • e.g. Suppose Duluth is making 1,000 shirts/day • Do need to buy more fabric, buttons, etc. (variable inputs) |
| What does "Fundamental Tradeoff' mean? | Labor & Capital are Substitutes! |
| What's an example of a "Fundamental Tradeoff"? | Mcdonalds Cashier vs Kiosk to order Labor vs Capital |
| What does a "Production Function" basically interpret? | Output is a “function” of inputs Output= a function of Labor and Capital |
| True or False Output only increases if both inputs increase | True |
| True or False When adding total output of labor and capital, you can use any combo of (L, K) that you need/want because they ARE SUBSITUTABLE | True |
| True or False When multiplying total output of labor and capital, you can use some combos of (L, K) that you need/want but they AREN'T PERFECTLY SUBSITUTUABLE | True |
| When it's MIN (L, K) of total output of labor and capital, you can't use any combo you need/want because they ARE NOT SUBSITUTABLE | True |
| What does "Marginal Product" mean? | Marginal Product means change in total output (total product) when you add one more unit of an input (L or K) - How much more output will we be able to produce, if hire one more worker/machine/etc.? |
| What does "Diminishing Marginal Productivity" mean? | As add units of a variable input (say, labor) to a fixed input (factory), output will increase, but at a decreasing rate |
| What's the basic concept of "Diminishing Marginal Productivity" | Hiring 4th worker less productive than 3rd , less than 2nd ... but you must pay these workers the same wage, so when do you stop hiring more workers??? |
| True or False Capital (building/equipment) is often the fixed input | True |
| True or False Labor is the variable input | True |
| How many stages are there in production short run? | 3 |
| What is a "stage" in production? | A range of inputs -First 10 workers, next 20 workers, next is any workers> 20 |
| True or False Manager will only want to hire in one range of production because only one stage will represent “rational” level of production | True |
| True or False Manager will always want to hire in Stage 2 | True |
| Why do managers always want to hire in stage 2? | Stage 2 will maximize profits |
| What does stage 1 entail in production? | In stage 1: The fixed input is underutilized -The factory/machine is underutilized because we need to hire more labor |
| What does stage 2 entail in production? | In stage 2: The fixed input is properly utilized -We are right where we should be because we hired the quantity of labor that is more coordinated with the current factory size |
| What does stage 3 entail in production? | In stage 3: The fixed input capacity is exhausted -We've outgrown our factory |
| True or False Stage 2 is the "least-cost" stage? | True |
| True or False In stage 2, "least-cost" will translate to "most profit" | True |
| What does "Value of Marginal Product" mean? | Value of Marginal Product tells us the dollar value that the last hired unit brings into the firm -VMP always needs to be bigger than the wage to determine how many more workers to hire |
| What does "Diminishing Marginal Product" mean? | Diminishing Marginal Product means when the fixed input and the variable inputs clash Example: Machines stop working and workers can't use them |
| What does "Capacity Planning" mean? | Capacity Planning means increasing and/or decreasing capacity (changing fixed inputs), allows firm to ensure it is operating in (most efficient) Stage 2 -Adjusting fixed input has effect of shifting short-run production function up or down |
| True or False Depending on your demand forecast, you may want to increase capacity to remain in efficient range of production | True |
| True or False It is efficient to change fixed input (capacity) when demand for your product makes it impossible to operate in Stage 2 | True |
| What does "Long Run Production" mean? | Long Run production uses both labor AND capital Must use some mix of inputs: • A lot of L, and a little K • A lot of K, and a little L • Or a more even mix of K & L ... |
Created by:
cydneywilli